While small businesses often struggle to get the attention of financiers, a new online company with the approachable name Happy Mango is opening new financial doors for them through an internet platform.

The travails of small businesses are well known. They’re big job creators, spawning nearly twice as many jobs as large companies from 2010 to 2019 — 10.5 million versus 5.6 million, according to the federal Consumer Financial Protection Bureau. But small businesses usually are the first to succumb during an economic downturn. A third of small businesses closed during the height of the Covid-19 pandemic, the CFPB reports.

While the pandemic may be a passing phenomenon, a chronic illness plaguing small businesses is lack of credit. Some 27% of small businesses claim they can’t get the funding they need, according to a 2017 National Small Business Association survey cited by the CFPB.

Fixing a ‘flawed’ credit-scoring system

Kate Hao, founder and CEO, Happy Mango

Reasons for that credit starvation include a flawed credit-scoring system and plodding underwriting and servicing processes that make lending below certain thresholds — which often are marginal or unprofitable for many large banks, asserts Kate Hao, founder and chief executive of Happy Mango Inc. She adds that those lending thresholds, though too low for many banks, are often still much higher than what a small business may need.

Those are the problems New York City-based Happy Mango is attacking through its online risk-assessment and lending platform for community banks, credit unions, and non-profit community development financial institutions. In addition to business loans, the platform processes and manages auto, mortgage and personal loans for consumers. The three-tiered platform also serves financial counselors as well as consumers directly by providing data and analysis for monitoring financial health and enhancing creditworthiness.

In addition, Hao wanted her platform to streamline what she says are often inefficient processes involved in loan applications, documentation, and servicing. The platform supports those functions as well as payment processing.

A hunch about better data on borrowers

Hao, who was born in China, obtained her bachelor’s degree from Albion College in Michigan and her MBA from Harvard Business School, knows her way around the financial world. She spent about 12 years at Morgan Stanley, rising to executive director of the giant investment bank’s corporate treasury unit before going off on her own in 2014.

While at Morgan Stanley, Hao concluded lenders didn’t have all the tools needed to assess risk for lending to financially underserved consumers and small businesses. The scores generated by the dominant credit-reporting agencies — Equifax, Experian, and TransUnion — are based mostly on loan repayment data and thus “are backward looking,” says Hao. Helpful, yes, but not the full picture.

Hao says that developing online technology for improved risk assessment was Happy Mango’s initial task when it landed its first client in 2016. Her hunch was that data about a small-business owner’s checking and savings accounts and cash flows would paint a fuller risk picture than scores alone. But the job can be complicated because “at the micro-business level, the personal and business finances of the owner are very much intertwined,” she says.

Thus, Happy Mango’s differentiator in credit assessments emphasizes “recurring spending items, the recurring income items,”  Hao says. “We look at cash flows; the other ones look at past payment history.”

Building a new kind of lending platform

Another differentiator, she adds, is the Happy Mango platform’s ability to quickly adjust payment due dates without forcing the business owner to plead for mercy from the lender when expenses temporarily exceed income. That’s possible because of the insights Happy Mango gets from its account and cash-flow data.

“Flexibility in payments is hugely important,” says Hao. “That kind of payment flexibility is almost as important as strong risk assessment.” The platform’s lending functions are integrated with the financial advisory aspects for consumers, small businesses, and financial advisors, she adds.

Happy Mango, which has just four employees, developed the platform mostly from scratch, Hao says. But some prominent technology firms provide crucial support behind the scenes. One is Plaid Inc., a big data aggregator for fintechs, which provides access to consumer bank-account information. In addition, Dwolla Inc. manages automated clearing house payments between borrowers and lenders.

Today, 10 community financial institutions based in the New York City area use Happy Mango’s lending platform. The business lending component went live 18 months ago, and since then nearly 400 small businesses have obtained credit through it. Although Covid-19 destroyed many small businesses, it had the ironic effect of helping Happy Mango grow by enabling community lenders to distribute government-backed Paycheck Protection Program (PPP) loans through its platform.

Learning what can be done online

“That kind of got us started,” says Hao. “It was a great time for people to see a lot of things can be done online.”

While big banks often prefer to make business loans of $50,000 or more, the median amount of a loan processed through Happy Mango is just above $10,000, with actual amounts ranging from $3,000 to $400,000, Hao says.

Happy Mango’s pricing for financial institutions is subscription-based, with three plans ranging from $350 per month and a $2,500 one-time set-up fee to $950 monthly and a $5,000 one-time fee. Tailored pricing for high-volume users is also available.

Hao is coy about what big things she has in mind for the future, though she notes that updates are made to the platform every two weeks. No matter, her focus will remain the same.

“We’ve made a significant impact in the community that needs assets through credit,” she says. “I think we’ve improved efficiency in a major way.”

Jim Daly is a Mount Prospect, Illinois-based freelance journalist covering business and technology.

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